Wednesday, February 18, 2009

Obama’s Mortgage Bailout

After reading the news stories and listening to the speech, it took awhile to figure why this did not smell right. Reading Fox News, the plan seems straightforward. Then, after reading, NewsMax and doing some ruminating, the problem became quite evident. None of these numbers add up!

According to Newsmax:

The initiative is designed to help up to 5 million borrowers refinance — if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac. It also provides incentive payments to mortgage lenders in an effort to convince them to help up to 4 million borrowers on the verge of foreclosure.

Another part of the plan is as follows:

“Headlining Obama's plan was a $75 billion Homeowner Stability Initiative, which would provide a set of incentives to lenders to cut monthly mortgage payments to sustainable levels. It defines this at no more than 31 percent of a homeowner’s income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.”--NewsMax

Seems ok, so far. BUT…

“Of the nearly 52 million U.S. homeowners with a mortgage, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody's”--NewsMax

Uh-oh, this does not add up, because the plan, according to Obama, is to help only 9 million people, and we know that number will be declining in the next few weeks. He always lowers expectations. So, what about the 4.8 million that the plan does not help? Who is exactly covered and not?

Also, if you simply divide the $75 billion by 9 million borrowers, each borrower would receive $8333. That seems it would help if you owned a lower priced home but what about the high priced homes. $8333 is not going to help anyone who has lost substantial value in their homes, such as $20,000 to $100,000.

Michelle Malkin discusses other aspects of what is wrong with this plan.

Now, there are some major questions based on principle here. First, is this plan going to help the real estate investors that were risking money on the purchasing a home, sitting on it, and then selling it for a profit when the value increased. This is called flipping. Many people were caught in the flip when housing market crashed and the house was worth less than what they bought it for. Are we helping them? What about rental properties are they covered?

Now, the key problem with this bailout. What happened to personal responsibility in this country? It must have died and is buried next to common sense. These people are adults. They read these contracts. They know what they were doing. The interest rates went up. The value of the home went down. That is life. Why are we using taxpayer’s money, OUR money, to pay for their mistakes? I understand it is not this simple, but they did sign these contracts and should be held responsible for their actions, not us or the government.

Finally, it is very odd that Freddie Mac and Fannie Mac are going to assist in the refinancing of these loans. The same company with their unscrupulous lending practices that caused the housing and banking crisis in the first place. The same company ran by Franklin Raines who is one of Obama’s unofficial advisers. The same company that Rahm Emanuel was on the board of. This is beginning to smell real bad at this point.

It will be interesting to see how Christopher Dodd and Barney Frank play a part in this plan.

Obama said he wants to fundamentally “change” our country. Well…by doing the same old lending practices with the same companies and people is a nice start, I guess.

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